Part 3 – The Law of Contract

Prepared by Michael Bozzo, Mohawk College

Chapter 7 – An Introduction to

Contracts

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Historical development Elements of a valid contract

Intention to create Legal Relationship Offer

Nature Communication of an offer Lapse and Revocation

Acceptance Consideration Capacity Legality

Overview

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ContractAn agreement made between two or more

persons that is enforceable at lawFreedom of contract, the general ability of

the parties to create specific rights and duties

Introduction

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Merchant law Ecclesiastic lawManor courts17th century development of the

bargain theory of contract

Historical Development

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1. An intention to create a legal relationship2. Offer 3. Acceptance4. Consideration5. Capacity to contract6. Legality

Requirements must be met for a contract to be enforceable by the Courts

Elements of a Valid Contract

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Requirement of writingFor certain contracts

Free of vitiating elementsMistakeMisrepresentationUndue influenceDuress

Elements of a Valid Contract

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ContractMeeting of the minds (consensual agreement)Consensus to subject and object of the contractEssential element is a promise

Party intended to be bound by promise madeIntention is a presumption at law

Intention

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Presumptions in contract lawStrangers intend to be bound by their promisesFamily members and close friends do not intend

to be bound in contractsBoth are presumptions that can be rebutted

Invitation to do BusinessAdvertisements are not offersInvite offers that seller may accept or reject

Presumptions

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Intention of the Parties

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Nature of an OfferA tentative promise subject to a condition

Communication of an OfferAn offer must be communicated to the other

party to be acceptedCannot accept an offer you do not know ofCrossed offers – in the mail do not constitute a

contractOnly person to whom offer is made may accept it.

Offer

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AcceptanceA statement or act given in response to

and in accordance with an offerAcceptance must be communicated in the

manner requested or implied by the offeror in the offer By words or conduct

Acceptance

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RulesOfferor is master of their offer and can

dictate form of acceptanceIf acceptance is to be by oral means

Acceptance complete by either phone or direct speaking to offeror

Acceptance (Specific Rules)

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Acceptance by postAcceptance takes place when the letter, properly

addressed and postage paid, is placed in the postbox

Acceptance effective where placed in the postboxGoverning law, unless otherwise stated, is the law

of the place where the letter is postedPostal acceptance allowed even if not specifically

stated if it is the normal or usual mode of acceptance

Postal Rule

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All other modesAcceptance not complete until offeror

made aware of acceptance Until it reaches offeror Acceptance complete when and where

received

Other Modes of Acceptance

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Electronic documents covered by Federal law Personal Information Privacy and Electronic Documents Act

E-documents are deemed to be sent when they enter a system outside of the sender’s control , or when they become capable of being retrieved and processed by the addressee

E-contractors can opt out of statutory provisions in their “terms of use”

Location of the transaction – determining where contract is located is more difficult on-line

Electronic Offer and Acceptance

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Data messages are deemed to be dispatched from the originator’s place of business and received at the addressee’s

Location of contract (choice of law) is not readily evident when messages are routed through multiple nations or provinces servers. The deeming provisions above mark the location of offer and acceptance , not necessarily the location of the contract

Location of contract is quite often stipulated in the express “terms of use” agreed to by the parties

Courts are willing to seize jurisdiction based upon locus of harm or based on taxation/customs issues

On-line Contracts

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Must be clear and unconditionalCounteroffer is a new offer and a rejection of

original offerSilence is not acceptance unless pre-existing

agreement to this effect existsException: party assented to the contractConsumer protection reinforces common law

rule of silence is not acceptance

Nature of Acceptance

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RulesIf a method of acceptance is stated, offeree must

comply with requirementsIf only preference for a particular method of

acceptance is stated then: If a method other than the method mentioned

in the offer is selected, the acceptance would only be effective when it was received by the offeror

Nature of Acceptance

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Unilateral OffersAn offer made to the world at largeThe performance of the act is acceptanceOfferor cannot revoke offer so long as

offeree is in the course of performing their part

Nature of Acceptance

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Forms of Acceptance

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LapseThe termination of an unaccepted offer by

the passage of time, a counteroffer, or the death of a party

Rejection of an offer: offer cannot be accepted later unless the original offer is revived

Lapse of an Offer

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Passage of timeOffer lapses after:

Stated time in the offer expires If not stated period of time, after a

reasonable period of time Reasonable period depends on subject

matter and circumstances of the transaction

Lapse of an Offer

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RevocationThe termination of an offer by notice

communicated to the offeree before acceptanceOffers can be revoked anytime before acceptance

unless there is an optionRevocation must be communicated to the offereeRevocation can be communicated in any form as

long as it is communicated

Revocation of an Offer

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OptionA separate promise to keep an offer open for a

period of timeRequires consideration or signed under seal

Indirect RevocationRevocation can be communicated through

someone else (indirect) Must prove offeree had notice of revocation

indirectly from a reliable source

Revocation of an Offer

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Offer and Acceptance

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ContractsPromises enforced by the courts

RequirementsIntention to create legal relationship

Presumptions certain people intend to contract and certain people do not intend to contract

Offer Must be communicated to offeree and only one

to whom offer is communicated can accept

SUMMARY

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AcceptanceMust be communicated in manner requested by

offerorPostal rule – acceptance is valid when and where

placed in post boxOther forms – when and where acceptance

received by offerorCounteroffers – are a rejection and new offer

SUMMARY

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LapsePassage of time, counteroffer, or death of

party Revocation

Anytime before acceptance unless an option is given

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SUMMARY